BUSI 721, Fall 2022
JGSB, Rice University
Kerry Back
But the gain or loss from gambling is average gain per gamble \(\times\) number of gambles.
Based on history, the bet is definitely in our favor.
Play for a long time \(\Rightarrow\) almost certainly come out ahead.
But how far ahead is quite uncertain.
nsims = 1000
r = np.random.normal(loc=mn, scale=sd, size=nyears*nsims)
r = r.reshape((nyears, nsims))
comp_ret = np.prod(1+r, axis=0)mean 34.84
std 34.88
min 0.90
10% 7.51
25% 13.31
50% 23.92
75% 43.10
90% 75.34
max 265.18
dtype: float64
Uncertainty about long-run returns \(\Rightarrow\) uncertainty about retirement plans.